They actually sold about 2million N-Gages I believe. The trouble with the phone model is that you only get a small percentage playing more than a couple of games. So 2 million sounds a lot, but if people played/bought on average 3 games, that's 6 million sales to go between all the games released (at least 30-40 titles? a guess).
The new model is better in that Nokia will sell millions of smartphones. Of course, what it's lost is the decent controls etc. Hopefully they can slip out at least one game-favouring phone, like the SE walkman phone with fire buttons?